Tax wedge for an average single worker
(definition of the tax wedge)
(Table O.1 xls/27kB)
The tax wedge between total labour costs to the employer and the corresponding net take-home pay for the average single workers without children in OECD countries varied between Belgium (55.5%) and Chile (7%) in 2011. The OECD average is 35.2%.
In Belgium, Germany, Hungary and France, the tax wedge rates are around 50% or higher, while they are under 20% in Chile, Israel, Mexico and New Zealand.
In 2011, these tax wedges increased in twenty-six countries and fell in six. There were increases of more than one percentage point in four countries. The largest increase was in Hungary (2.77 percentage points), followed by Luxembourg and Portugal. New Zealand (-1.12 percentage point) was the only country with a decrease of more than one percentage point.
Higher income taxes were the major factor in eighteen of the twenty-six countries showing a higher tax wedge.
- The largest increases in income taxes as a percentage of labour costs were in Ireland (3.82 percentage points) where more than half of the increase was offset by a reduction in employee social security contributions and Hungary (2.4 percentage points).
- In New Zealand the whole of the 1 percentage point fall is attributed to income taxes.
- In contrast, higher employee and employer social security contributions accounted for virtually all of the increased tax wedge in Germany, Japan, Korea, Luxembourg and Norway.
- In the United States, where the overall tax wedge fell by 0.9 percentage points, a rise in income tax was offset by a decrease in employee social security contributions.
Below is a document explaining the reasons for the 2011 increase in the personal income tax wedge for those countries with an increase above the OECD average of 0.3 percentage points.
Tax wedge for families with children
(Table 0.4 - 28kB xls)
The size of the tax wedge for families with children is generally lower than the one observed for the individual without children, since many OECD countries provide a fiscal benefit to the former through advantageous tax treatment and/or cash transfers.
The savings realised by a one-earner married couple compared to a single worker are greater than 20 per cent of labour costs in the Czech Republic and Luxembourg and greater than 15 per cent of labour costs in six other countries - Belgium, Germany, Hungary, Ireland, New Zealand and Slovenia.
At the other end of the scale, the tax burdens are the same in Chile and Mexico and different by -1.4 percentage points in Turkey (see columns 1 and 2).
In 2011, the tax wedge of a one-earner married couple with two children increased in 26 and fell in 6 OECD countries,
- there were increases of greater than 1 percentage point in six countries - Ireland (2.4), Portugal (2.3), Slovak Republic (2.1), Iceland (1.9), Luxembourg (1.8) and Germany (1.1).
- the tax wedge fell by 3.9 percentage points in Hungary; and by lower amounts in five other countries: Netherlands, New Zealand, Turkey, United Kingdom and United States.
- in 80 per cent of countries the change did not exceed plus or minus one percentage point (see column 3).
- The fiscal preference for families increased in five OECD countries: Hungary, Israel, Korea, Poland and Turkey. Additionally, the effects of changes in the tax system on the tax wedge were independent of the family type in Mexico, Switzerland and United Kingdom.
The constituent components of the tax wedge for an average single worker without children in 2011
(Table O.2 - 28kB xls and Figure O.1 - 20kB xls)
- The percentage of labour costs paid in income tax varies considerably within OECD countries. The lowest figures are in Chile (zero), Korea (3.9%) and Mexico (4.4%). The highest values are in Denmark (28%), with Australia, Belgium and Iceland all between 21 and 26%.
- The percentage of labour costs paid in employee social security contributions also varies widely ranging from zero in Australia and New Zealand to 17.4% in Germany and 19% in Slovenia.
- Employers in France pay 29.7 per cent of total labour costs in social security contributions (including payroll taxes), the highest amongst OECD countries. These contributions are also more than 20 per cent of labour costs in nine other countries - Austria, Belgium, Czech Republic, Estonia, Hungary, Italy, Slovak Republic, Spain and Sweden.
Personal average tax rates for an average single worker without children in 2011.
(definition of net personal average tax rates)
(Table O.3 - 27kB xls and Figure O.2 - 16kB xls)
The impact of taxes and benefits on worker’s take-home pay varies greatly among OECD countries; reflecting differences in the ratios of total tax revenues to Gross Domestic Product and the share of personal income tax and social security contributions in national tax mixes. (Table O.3).
- Belgium at 42.2 % of gross earnings has the highest rate with Denmark and Germany being the only other countries with rates of more than 35%.
- Chile and Mexico have the lowest personal average tax rates with 7.0 and 6.3% of gross average earnings respectively. Korea is the only other country with a rate of less than 15%.
- On average, the personal average tax rate in OECD countries is 25%.
The mix of taxes paid out of gross wage earnings in 2011 also varies greatly between countries. (Figure O.2)
- the share of income tax within the personal average tax rate is more important than the share of the employee social security contributions for 23 of 34 OECD Member countries.
- no employee social security contributions are levied in Australia and New Zealand and the rates are comparatively small in Estonia, Iceland and Mexico.
- in contrast, the single worker at the average wage level paid substantially more employee social security contributions than personal income tax in six countries - Japan, Korea, Poland, Slovak Republic and Slovenia plus Chile, where the average worker did not pay personal income tax in 2011.
- in 10 countries - Austria, Czech Republic, France, Germany, Hungary, Israel, Luxembourg, the Netherlands, Portugal and Turkey the income tax and employee social security contributions as percentages of gross earnings are almost equivalent (differences of less than 3 percentage points).
Comparison of personal average tax rates for the average single worker and families with children.
(Figure O.3 - 18Kb xls)
The comparison of the net personal average tax rate for the average worker between single individuals and a one-earner married couple with two children shows the same pattern of results as those for the tax wedge. (Figure O.3). This is because employer social security contributions which are not taken into account in the former but included in the latter are independent of family type.
- The savings realised by a one-earner married couple are equal to or greater than 20 per cent of earnings in five countries - the Czech Republic (27.8%), Luxembourg (25.4%), Slovenia (22.6%), Ireland (21.8%) and Hungary (21.3%).
- In contrast, the savings as percentage of gross earnings are less than 10 per cent of earnings in eleven countries - Japan (8.9%), the Netherlands (7.8%), Spain (7.4%), Norway (7.3%), Sweden (7.2%), Poland (6.8%), the United Kingdom (6.7%), Finland (6.1%), Israel (4.0%), Korea (2.7%) and Turkey (1.6%).
- The burden is the same in Chile and in Mexico.
- It is also interesting to note that when cash benefits are taken into account, the tax burden measure for one-earner married couples with two children becomes negative in the Czech Republic, Ireland and New Zealand because cash benefits exceed the income tax and social security payments.
Tables & Figures
Below are a list of the tables and figures referred to in the text above. For a full list of tables and figures presented within the 2011 Taxing Wages publication please visit the OECD iLibrary.
Table 0.1. Comparison of total tax wedge (as % of labour costs)
Table 0.2. Income tax plus employee and employer social security contributions (as % of labour costs, 2011)
Figure 0.1. Income tax plus employee and employer social security contributions (as % of labour costs, 2011)
Table 0.3. Income tax plus employee social security contributions (as % of gross wage earnings, 2011)
Figure 0.2. Percentage of gross wage earnings paid in income tax and employee social security contributions 2011
Table 0.4. Comparison of total tax wedge by family type (as % of labour costs)
Figure 0.3. Income tax plus employee contributions less cash benefits by family type
Access to the complete dataset shown in the Taxing Wages report, including detailed country information, is through subscription. For details on how to subscribe please visit our "Getting Online Access" page at the OECD Library website.
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